Sometimes banks will freeze your bank accounts, or worse, close your account. This can cause a serious disruption with your finances. If you receive direct deposit, and your bank decides to freeze your account, even if only for a week, you may not be able to pay your rent, pay for food, or put gas in your car. Frequently, new clients, or other attorneys, call me and ask me, which banks will close your account when you file bankruptcy? I try to stay as up to date as I can on the polices of different banks. In doing so, one thing I’ve come to learn is that the policies of the different banks are constantly changing.
Banks That Close Your Account When You File Bankruptcy
While we could certainly give you a list of banks in San Diego that will not close your account as of the last update of this blog, however as a practical matter it would not be very helpful to you. The reason: banks constantly change their policies, sometimes weekly. For example, as of the date of this blog, Chase Bank and Citibank were banks in San Diego that have a policy of not freezing or closing your account and they may still have that policy. However, by the time you read this blog, the policies of Chase and CitiBank could have changed. As a bankruptcy lawyer, I believe that the best advice I can give my clients is to always check with the branch manager of your bank to get your bank’s current policy and make sure their policy has not changed if it is a bank discussed in this blog. Ask both a San Diego bankruptcy lawyer, and confirm with your bank’s branch manager what their current policy is with respect to treatment of a bank account in bankruptcy. That way, you will be sure of whether or not your bank will close your account when you file bankruptcy San Diego.
Why Banks Freeze Accounts
Under the bankruptcy law your creditors may, under certain circumstances, have what is called a right to setoff. If your bank has setoff rights it means that if you owe the bank money, for example you have credit card debt with the same bank, your bank may be able to freeze your account and take any funds you had in your account as of the date you file bankruptcy and apply the funds to your debt owed to the bank. The main reason that banks freeze accounts is to give the bank a chance to have its legal department or lawyers determine if they have any setoff rights. Even if you don’t owe your bank any money, your bank could conceivably freeze your account while it determines whether or not it has setoff rights.
Why Banks Close Accounts
Most banks don’t close accounts. It is usually the credit unions that close accounts. The reason that they do this is that the agreement you signed when you joined the credit union often says that you cannot be a member of the credit union if you file for bankruptcy.
Talking to Your Branch
There are a number of banks that have a general policy of not placing a freeze on your bank accounts. Pinning down the banks that employ such a policy is like trying to hit a moving target. The banks are constantly changing their policies and standards, including how bankruptcy affects your account. There are literally thousands of banks. No bankruptcy lawyer in San Diego can be an expert on the policy of every single bank.
Therefore, the best advice that a competent lawyer can give you is that before you file bankruptcy you should walk into your branch and talk to the branch manager and get a clear answer on the bank’s current policy with regard to treatment of bank accounts in bankruptcy. You will have to do this within a short period of time before you file bankruptcy because of the constantly changing bank policies. If your bank has a policy of freezing or closing bank accounts, then you can simply open up a bank account at a bank that has a bankruptcy friendly policy and stop sending your direct deposits to a bank that may freeze or close your account.